- February 2023 Class I base price on the move again
- December cull dairy cow marketing higher
- Inflation hit dairy aisle in 2022
- November fluid sales stayed on trend
- GDT index dipped
- Coming up
February 2023’s Federal Milk Marketing Order (FMMO) advanced Class I base price hit a 13-month low. However, for the first time in a while, the “average-of plus 74 cents” formula was beneficial to producers.
At $20.78 per hundredweight (cwt), the February 2023 Class I base is down $1.63 from January and 86 cents less than February 2022.
Class I zone differentials are added to the base price at principal pricing points to determine the actual Class I price in each FMMO. With those additions, February Class I prices will average approximately $23.60 per cwt across all FMMOs, ranging from a high of $26.18 per cwt in the Florida FMMO 6 to a low of $22.58 per cwt in the Upper Midwest FMMO 30.
Analyzing the Class I mover, the spread in the monthly advanced Class III skim milk pricing factor ($10.28 per cwt) and advanced Class IV skim milk pricing factor ($11 per cwt) is 72 cents per cwt, the narrowest gap since June 2022.
Based on Progressive Dairy calculations, the Class I mover calculated under the “higher-of” formula would have resulted in a Class I base price of $20.41 per cwt, 37 cents less than the actual price determined using the average-of plus 74 cents formula. That’s the first time the average-of formula yielded a higher Class I base price than the previous higher-of formula since June 2022.
Through February 2023, the average-of plus 74 cents formula has been in effect for 46 months (since May 2019). Over that period, the average-of formula yielded a higher Class I base price than what would have resulted under the previous higher-of formula in 19 months, but a lower Class I base price in 26 months (one month, January 2022, was equal using both formulas).
Based on Progressive Dairy calculations of monthly Class I milk price averages, the average-of plus 74 cents formula resulted in a net benefit (on Class I prices paid to producers) of 12 cents per cwt in 2019 and 8 cents per cwt in 2021. However, the formula resulted in a net negatives of $1.69 per cwt in 2020 and 57 cents in 2022.
The economic impact on uniform milk prices within individual FMMOs depends on Class I milk utilization in each FMMO. Those FMMOs with highest Class I utilization are affected the most.
Marketing of U.S. dairy cull cows through U.S. slaughter plants increased in December but ended the year behind last year’s estimates.
At 266,300 head, the December total was up 15,400 from November but about 1,500 less than December 2021. Both December 2021 and 2022 had 27 non-holiday weekdays and Saturdays.
At 3.047 million head, 2022 cull dairy cow slaughter was about 59,100 less than 2021 and the lowest annual since 2017.
Heaviest dairy culling during December 2022 occurred in the Upper Midwest (Illinois, Indiana, Michigan, Minnesota, Ohio and Wisconsin) at 65,800 head. That was followed closely by the Southwest (Arizona, California, Hawaii and Nevada), where 65,400 dairy cows were marketed for beef.
Other monthly regional totals were estimated at 42,100 head in Delaware, Maryland, Pennsylvania, West Virginia and Virginia; 33,200 head in Arkansas, Louisiana, New Mexico, Oklahoma and Texas; and 31,300 head in Alaska, Idaho, Oregon and Washington.
For the year, heaviest cull dairy cow marketing was in the Upper Midwest at 735,100 head, followed by the Southwest (719,700 head).
Beef cow marketing declined in December, down 23,100 head from November and about 5,000 less than December 2021. Total 2022 beef cow slaughter was up more than 388,500 compared to 2021, reaching 3.95 million head.
Primary data for the USDA’s Livestock Slaughter report are obtained from reports completed by inspectors from the USDA Food Safety and Inspection Service (FSIS). These counts are combined with data from state-administered non-federally inspected (NFI) slaughter plants to derive total commercial slaughter estimates. The USDA estimates there are approximately 900 livestock slaughter plants in the U.S. operating under federal inspection and nearly 1,900 state-inspected or custom-exempt slaughter plants.
The U.S. Department of Labor’s Bureau of Labor Statistics released consumer price indexes (CPI) for 2022, including estimated rates of inflation for multiple animal products. Among commodities reported in the latest USDA Economic Research Service Livestock, Dairy and Poultry Outlook report, 2022 inflation rates for dairy, poultry and eggs exceeded that for food in general.
After withstanding most inflationary pressures in 2021 (up 1.4%), consumer prices for dairy and related products jumped 12% in 2022, trailing only poultry (14.7%) and eggs (32.3%) in 2022. The 2022 CPI for all food increased by 9.9% in 2022 after increasing 3.9% in 2021.
The 2022 CPI for beef and veal (5.3%) was the only item with a lower inflation in 2022 than in 2021 (9.3%). Pork prices increased by 8.7% in 2022 and 8.6% in 2021.
Separately, University of Illinois ag and consumer economists Maria Kalaitzandonakes and Jonathan Coppess and Purdue University ag economist Brenna Ellison summarized recent consumer surveys on how rising food prices are impacting food purchasing decisions. (Read: How U.S. consumers say they’re coping with rising food prices.)
The summary looked at various coping mechanisms (i.e., buying cheaper or store brands, shopping at multiple stores, changing food types, etc.) used by consumers to reduce food costs.
They also analyzed the proportion of consumers who said they decreased purchases of specific food categories due to higher prices, finding variation among those based on “food security status.” For example, about 25.9% of consumers with high or marginal food security status had reduced dairy purchases, while about 44.8% of those with very low food security status had reduced dairy purchases.
Here’s an update on U.S. fluid milk sales data from the USDA Agricultural Marketing Service for November 2022.
- Total sales: Sales of packaged fluid milk products totaled about 3.69 billion pounds, down 2.9% from the same month a year earlier. At 39.5 billion pounds, year-to-date (January-November 2022) sales of all fluid products were down 2.3%.
- Conventional products: Monthly sales totaled 3.46 billion pounds, down 2.7% from the same month a year earlier. Year-to-date sales totaled 36.88 billion pounds, down 2.4% from January-November 2021. Whole milk was the only major category to post higher monthly and year-to-date sales.
- Organic products: Monthly sales totaled 230 million pounds, down 4.9% from a year earlier. At 2.62 billion pounds, year-to-date sales of all fluid organic products were down 1.2%. Flavored fat-reduced (2% fat) milk was the only organic category to post higher monthly and year-to-date sales; organic whole milk sales were also up year to date. Organic represented about 6.2% total fluid product sales in September and 6.6% year to date.
The U.S. figures are based on consumption of fluid milk products in FMMO areas, which account for approximately 92% of total U.S. fluid milk sales, and adding the other 8% from outside FMMO-regulated areas. Sales outlets include food stores, convenience stores, warehouse stores/wholesale clubs, nonfood stores, schools, the food service industry and home delivery.
The latest Global Dairy Trade (GDT) auction, held Jan. 17, posted a small decline in the overall dairy product price index. The index fell 0.1%, with prices in individual product categories mostly lower:
- Skim milk powder was down 0.3% to $2,842 per metric ton (MT, or about 2,205 pounds).
- Whole milk powder was down 0.1% to $3,218 per MT.
- Anhydrous milkfat was down 0.9% to $5,337 per MT.
- Butter was down 0.6% to $4,449 per MT.
- Cheddar cheese was up 4% to $4,871 per MT.
The GDT platform offers dairy products from six global companies: Fonterra (New Zealand), Dairy America (U.S.), Amul (India), Arla (Denmark), Arla Foods Ingredients (Denmark) and Polish Dairy (Poland). The next GDT auction is Feb. 7.
The USDA releases the preliminary December 2022 Milk Production report and Cold Storage report on Jan. 25. The monthly Ag Prices report, including factors used to calculate the December Dairy Margin Coverage (DMC) program margin and potential indemnity payments, will be released Jan. 31. Also on that date, a semiannual estimate of U.S. dairy and beef cows and heifer inventories will be published. Check the Progressive Dairy website for updates as they become available.